Managerial Cost Accounting Practices at the Department of the Interior
Gao ID: GAO-07-298R May 24, 2007Authoritative bodies have promulgated laws, accounting standards, information system requirements, and related guidance emphasizing the need for accurate and reliable cost information in the federal government. For example, the Chief Financial Officers (CFO) Act of 1990 contains several provisions related to managerial cost accounting (MCA), one of which provides that an agency's CFO should develop and maintain an integrated accounting and financial management system that provides for the development and reporting of cost information. Statement of Federal Financial Accounting Standards (SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, and the Joint Financial Management Improvement Program's (JFMIP) Framework for Federal Financial Management Systems established accounting standards and system requirements for MCA information at federal agencies. In addition, the Federal Financial Management Improvement Act of 1996 required, among other things, that CFO Act agencies' systems comply substantially with federal accounting standards and federal financial management systems requirements. In light of the provision related to MCA information in federal agencies, we were asked to review the status of MCA in 10 of the largest civilian agencies. Our objectives were to determine how (1) federal agencies generate MCA information and (2) agency managers use cost information to support managerial decision making and accountability.
The Department of the Interior (Interior) and the four bureau-level components we reviewed each have systems for generating MCA information. The driving force for implementing MCA at Interior was strong management commitment. However, there is no single or integrated information system from which MCA data are generated. Additionally, there are multiple, independent systems at the department and bureaus from which financial and nonfinancial data are obtained for MCA. Controls over nonfinancial data quality for these systems are generally limited to bureau-level reviews for reasonableness. Those bureau-level controls may not be adequate to help ensure the accuracy, and therefore the usefulness, of MCA data. Further, Interior does not allocate cost elements consistently between bureaus. For example, the Bureau of Reclamation (BOR) uses the number of facilities to determine the cost of building maintenance whereas the department uses a square footage calculation. In addition, Interior does not have written procedures for monitoring the quality and accuracy of the data in its MCA system or a consistent methodology for pricing services at one of its components. In this regard, recognizing the need to help control risks resulting from multiple financial systems as well as a need for better functionality, Interior management is in early stages of implementing an integrated financial system, Financial Business Management System (FBMS), including developing a MCA module, for the department and each of its bureaus. Information from its various systems is routinely used by management at Interior and its bureaus for managerial decision making. At the department level, Interior uses cost information to highlight costs of department-wide activities, support recommendations for such things as changes to work processes, and to prepare budgets and performance targets. The bureaus we reviewed used MCA, among other things, to review and evaluate work processes, set prices and fees, identify workload trends, reallocate resources, and track performance indicators.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Jeanette M. Franzel Team: Government Accountability Office: Financial Management and Assurance Phone: (202) 512-4063GAO-07-298R, Managerial Cost Accounting Practices at the Department of the Interior
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May 24, 2007:
The Honorable Brian Bilbray:
Ranking Minority Member:
Subcommittee on Government Management, Organization, and Procurement:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Todd Russell Platts:
House of Representatives:
Subject: Managerial Cost Accounting Practices at the Department of the
Interior:
Authoritative bodies have promulgated laws, accounting standards,
information system requirements, and related guidance emphasizing the
need for accurate and reliable cost information in the federal
government. For example, the Chief Financial Officers (CFO) Act of
1990[Footnote 1] contains several provisions related to managerial cost
accounting (MCA), one of which provides that an agency's CFO should
develop and maintain an integrated accounting and financial management
system that provides for the development and reporting of cost
information. Statement of Federal Financial Accounting Standards
(SFFAS) No. 4, Managerial Cost Accounting Concepts and Standards for
the Federal Government, and the Joint Financial Management Improvement
Program's (JFMIP) Framework for Federal Financial Management
Systems[Footnote 2] established accounting standards and system
requirements for MCA information at federal agencies. In addition, the
Federal Financial Management Improvement Act of 1996[Footnote 3]
required, among other things, that CFO Act agencies' systems comply
substantially with federal accounting standards and federal financial
management systems requirements.
In light of the provision related to MCA information in federal
agencies, we were asked to review the status of MCA in 10 of the
largest civilian agencies. Our objectives were to determine how (1)
federal agencies generate MCA information and (2) agency managers use
cost information to support managerial decision making and
accountability.
This report on the Department of the Interior (Interior) is our fifth
in a series of reports concerning the status of MCA activities at large
government agencies.[Footnote 4] In addition to reviewing the
department-level systems, we selected three component bureaus with
larger obligations and earned revenue as well as a working capital fund
with cost recovery activities. These were the Bureau of Land Management
(BLM), the Bureau of Reclamation (BOR), the Minerals Management Service
(MMS), and the National Business Center (NBC) of the Departmental
Working Capital Fund (WCF).
Results in Brief:
Interior and the four bureau-level components we reviewed each have
systems for generating MCA information. The driving force for
implementing MCA at Interior was strong management commitment. However,
there is no single or integrated information system from which MCA data
are generated. Additionally, there are multiple, independent systems at
the department and bureaus from which financial and nonfinancial data
are obtained for MCA. Controls over nonfinancial data quality for these
systems are generally limited to bureau-level reviews for
reasonableness. Those bureau-level controls may not be adequate to help
ensure the accuracy, and therefore the usefulness, of MCA data.
Further, Interior does not allocate cost elements consistently between
bureaus. For example, BOR uses the number of facilities to determine
the cost of building maintenance whereas the department uses a square
footage calculation. In addition, Interior does not have written
procedures for monitoring the quality and accuracy of the data in its
MCA system or a consistent methodology for pricing services at one of
its components. In this regard, recognizing the need to help control
risks resulting from multiple financial systems as well as a need for
better functionality, Interior management is in early stages of
implementing an integrated financial system, Financial Business
Management System (FBMS), including developing a MCA module, for the
department and each of its bureaus.
Information from its various systems is routinely used by management at
Interior and its bureaus for managerial decision making. At the
department level, Interior uses cost information to highlight costs of
department-wide activities, support recommendations for such things as
changes to work processes, and to prepare budgets and performance
targets. The bureaus we reviewed used MCA, among other things, to
review and evaluate work processes, set prices and fees, identify
workload trends, reallocate resources, and track performance
indicators.
In its comments on a draft of this report, Interior concurred with six
of our eight recommendations. It stated it had already taken actions to
address the remaining two recommendations and is working diligently to
address the weaknesses cited in the report.
Background:
The CFO Act of 1990 was the beginning of a series of management reform
laws to improve federal financial management and set the stage for
other key reforms that followed. Among other things, the CFO Act
established a leadership structure for financial management, required
audited financial statements, and strengthened accountability
reporting. It contains several provisions related to MCA, one of which
states that an agency's CFO should develop and maintain an integrated
accounting and financial management system that provides for the
development of cost information and systematic performance measurement.
The goal of the CFO Act is to greatly enhance the ability of managers
to do their jobs by providing the full range of financial information
needed for day-to-day management.
There are many potential applications for cost information in the
federal government. This information can be used by federal executives
for budgeting and cost control, performance measurement, determining
reimbursements and setting fees and prices, program evaluations, and
decisions that involve economic choices, such as whether to do a
project in-house or contract it out.[Footnote 5] The Congress can also
use MCA information to determine how to fund programs and monitor
agency performance, as well as to analyze the merits of proposals
advocated by different parties. The public, in turn, can benefit from
greater transparency about program performance and ready access to
information on how its tax dollars are spent.
Managerial Cost Accounting Provisions:
The policies and standards prescribed for executive agencies to follow
in developing, operating, evaluating, and reporting on financial
management systems are included in Office of Management and Budget
Circular No. A-127, Financial Management Systems. The components of an
integrated financial management system are the core financial
system,[Footnote 6] an MCA system, and certain administrative and
programmatic systems. Administrative systems are those that are common
to all federal agency operations,[Footnote 7] and programmatic systems
are those needed to fulfill an agency's mission.
SFFAS No. 4, which became effective in fiscal year 1998, sets forth the
fundamental elements for MCA in government agencies.[Footnote 8] The
five standards in SFFAS No. 4 require government agencies to (1)
accumulate and report the costs of activities on a regular basis for
management information purposes; (2) establish responsibility segments,
and measure and report the costs of each segment's outputs and
calculate the unit cost of each output; (3) determine and report the
full costs of government goods and services, including direct[Footnote
9] and indirect[Footnote 10] costs; (4) recognize the costs of goods
and services provided by other federal entities; and (5) use and
consistently follow costing methodologies or cost finding techniques
most appropriate to the segment's operating environment to accumulate
and assign costs to outputs. SFFAS No. 4 states that MCA should be a
fundamental part of the financial management system and, to the extent
practical, should be integrated with other parts of the system.
MCA entails answering a very simple question. How much does it cost to
do something, be it an extensive overall program effort or the
incremental and iterative efforts associated with a project activity?
As such, it involves accumulating and analyzing both financial and non-
financial data[Footnote 11] to determine the costs of achieving
performance goals, delivering programs, and pursuing other activities.
The principal purpose is to consider how much it costs to do whatever
is being measured, thus allowing management to analyze whether that
cost seems reasonable, or to establish a baseline for comparison with
others that do similar work. The factors analyzed and the level of
detail depend on the operations and needs of the organization. Reliable
financial and nonfinancial data are cornerstones of this assessment,
because if the data are wrong, the resulting analysis can give a
distorted view of how well the organization is doing, thereby affecting
any decision making.
Interior Operations:
Interior's mission is to protect and manage the nation's natural
resources and cultural heritage; provide scientific and other
information about those resources; and honor its trust responsibilities
or special commitments to American Indians, Alaska Natives, and
affiliated island communities. For fiscal year 2006 Interior reported
gross and net outlays of approximately $20.7 billion and $8.6 billion,
respectively. Interior had approximately 73,000 employees, including
69,000 full-time equivalents (FTEs) and 200,000 volunteers (4,600
FTEs). Interior has eight bureaus organized in distinct mission areas,
in addition to departmental offices that support key Interior
operations and help carry out Interior's mission. It also has four
working capital funds and a franchise fund.
BLM's mission is to sustain the health, diversity, and productivity of
the public lands for the use and enjoyment of present and future
generations. For fiscal year 2005, BLM reported gross and net outlays
of approximately $2.6 billion and $.9 billion, respectively, and had
approximately 13,500 FTEs.
BOR's mission is to manage, develop, and protect water and related
resources in an environmentally and economically sound manner in the
interest of the American public. For fiscal year 2005, BOR reported
gross outlays and net receipts of approximately $1.75 billion and $1
billion, respectively, and had approximately 5,900 FTEs.
MMS's mission is to manage the ocean energy and mineral resources on
the Outer Continental Shelf and federal and Indian mineral revenues to
enhance public and trust benefit, promote responsible use and realize
fair value. MMS also collects, accounts for, and disburses more that $8
billion per year in revenues from mineral leases on federal and Indian
lands. For fiscal year 2005, MMS reported gross outlays and net
receipts of approximately $3.5 billion and $.2 billion, respectively,
and had approximately 1,700 FTEs.
The WCF was established to provide common administrative services to
Interior bureaus and other federal agencies on a reimbursable basis. In
fiscal year 2006, the WCF reported gross and net outlays of
approximately $1.5 billion and $.2 billion, respectively. NBC had
approximately 1,100 FTEs and is the largest activity center in the
department's WCF, comprising more that 85 percent of the department's
WCF activities. In fiscal year 2006, Interior's franchise fund, also
known as GovWorks, had a budgetary authority of $1.2 billion and was
merged with NBC.
Interior Generates MCA Information through Systems at the Agency and
Component Levels:
Each bureau we reviewed has its own stand-alone MCA system, which feeds
information to Interior's department-wide MCA system. Additionally,
there are multiple, independent systems at the department and bureaus
from which financial and nonfinancial data are obtained for MCA.
Controls over nonfinancial data quality for these multiple systems are
generally limited to bureau-level reviews for reasonableness. Those
bureau-level controls may not be adequate to help ensure the accuracy,
and therefore the usefulness, of MCA data. In addition, Interior does
not have written procedures for monitoring the quality and accuracy of
its activity-based cost management data. Recognizing the need to help
control increased risk resulting from multiple financial systems as
well as to increase functionality, Interior management is in early
stages of implementing an integrated financial system, including an MCA
module, for the department and each of its bureaus.
Interior Has a Department-Level MCA System in Place:
Interior has a department-wide MCA system, called ABC/M, which provides
information about the cost of work activities. Financial data are
extracted daily from the bureaus' stand-alone general ledger systems,
and nonfinancial data are obtained from other bureau source systems.
Interior has adopted an activity-based costing (ABC) approach to
departmental MCA. ABC is intended to measure the cost of activities,
such as issuing permits, maintaining trails, and performing site
inspections.
ABC/M includes approximately 300 work activities that align with the
department's four strategic mission objectives. Nonfinancial data such
as hours, miles, or acres are obtained from various bureau source
systems (entered manually or extracted from bureau systems). For
financial data the bureaus use either Federal Financial System (FFS) or
Advanced Budget/Accounting Control and Information System (general
ledger systems). Interior and its component bureaus use non-integrated
FFS, with the exception of MMS and Office of Surface Mining, which
migrated to FBMS in mid-November 2006.
Interior's Bureaus Have Developed Systems and Processes to Generate MCA
Data:
Interior leadership, including the Secretary, took an active role in
promoting MCA implementation and use at its bureaus. Interior actions
included directing the bureaus to take the lead developing MCA;
establishing a department-level steering committee to provide overall
guidance; facilitating issue coordination across the department;
enlisting additional bureau-level input through several groups,
including the Performance Management Council and the FBMS Steering
Committee; creating a team to oversee bureau efforts toward
implementing the departmentwide ABC vision; and issuing department-wide
policy and procedural guidance to ensure that bureau cost data are in
line with Interior strategic goals. The four Interior components we
reviewed all had their own stand-alone MCA systems.
BLM:
BLM developed its ABC system in 1999, 2 years prior to the
departmentwide directive. The bureau established an ABC core team to
assist in the development of a model. Once the model was developed, the
team assisted in the implementation of ABC throughout the bureau.
Financial data are extracted from BLM's general ledger and nonfinancial
data are added to the bureau's MCA system from a BLM-specific system
called the Performance Management System.
Personnel costs are accumulated as a product of time charged to
activities in BLM's time and attendance system (QuickTime). Direct
costs, including annual leave plus indirect costs (generally allocated
proportionally to personnel costs) are accumulated for each program
activity. BLM officials stated that they reconcile ABC/M data to the
Statement of Net Costs (SNC) on a quarterly and annual basis. BLM
received an unqualified (clean) audit opinion for fiscal year 2005, but
the auditors identified weaknesses in internal controls, which could
result in inaccurate cost data throughout the year. BLM has a cost
policy that contains directives, instructions, and internal budget
processes; however, it does not have a written policy on verification
and validation of its performance data.
BOR:
BOR principally uses an asset and maintenance management system known
as MAXIMO to identify costs, as its authorization and funding sources
are generally tied to specific projects. MAXIMO is not a cost
accounting system, but it does have the capability to track labor and
material costs throughout the life of an asset or project. MAXIMO
interfaces with both the general ledger (FFS) and the time and
attendance system (TAAS). BOR electronically transmits selected
budgetary information from FFS to the department's ABC/M system.
Financial data are extracted from BOR's general ledger, FFS, and
nonfinancial data are added to the bureau's MCA systems from a BOR-
specific system. Personnel costs are accumulated as a product of time
charged to activities in BOR's TAAS. All formal cost accounting is
accomplished through FFS, which provides valid cost accounts for
charging work that is planned and scheduled through MAXIMO. MAXIMO is
used to track material costs and approximate labor costs at a work
order level. It uses cost accounts that are previously coded as
reimbursable or nonreimbursable in FFS.
According to BOR officials, they crosswalk bureau costs from their
general ledger to the departmental ABC/M system for departmental cost
accumulation, but do not reconcile BOR's SNC prepared from general
ledger data to ABC/M data because of the lack of necessary proprietary
accounting data.[Footnote 12] BOR received a clean audit opinion for
fiscal year 2005, but did have one reportable condition concerning
financial reporting. BOR officials also told us that the project
authorization and funding structure can make it difficult to roll BOR
activities and outputs into the four Interior strategic goals.
Additionally, BOR identified maintenance work activity output measures
related to recreational sites that are inconsistent with Interior
output measures. The department's policy is to use square footage as a
unit measure, whereas BOR uses the number of facilities. A BOR official
stated this was because of a lack of square footage data on its
facilities. A department official told us that BOR will determine and
provide the square footage of the recreation facilities for which it is
responsible so the department can accurately accumulate and analyze the
full costs for this activity.
MMS:
MMS implemented an ABC/M system based on an OROS (SAS) platform, and
began coding employee time and activity records to work elements in
2003. The ABC/M system accumulates financial information from its
general ledger, FBMS and nonfinancial information in its Performance
Data Gathering and Reporting System. MMS does not reconcile its SNC to
its ABC/M data because of a lack of proprietary accounting data.
NBC/WCF:
Officials at NBC have a manual process to identify costs. The WCF does
not have written policies and procedures regarding recovery of costs by
products lines to prevent over-and undercharging customers. NBC
officials also told us that they currently do not uniformly apply costs
across NBC's directorates. Recognizing the need for better information
on which to base pricing and other managerial decisions, officials at
NBC told us that they are developing a new activity-based cost system
that is expected to become operational in fiscal year 2007.
Nonfinancial Data Must Be Extracted from Multiple Department-Level and
Component Systems:
While Interior has done much to develop MCA information, officials
acknowledged that the integrity of the ABC/M system data depends on the
effectiveness of the internal controls of the bureaus' systems that
provide data used in the departmental ABC/M. Weaknesses in internal
controls can result in inaccurate cost data throughout the year, which
may impede the department's ability to make well-informed decisions
based on accurate data. Further, Interior officials told us that it
currently does not reconcile the SNC and ABC/M data at the corporate
level because of differences between financial accounting data of the
general ledger and budgetary data of the cost systems. Such
reconciliations provide assurance that data from different sources are
accurate and complete. According to Interior's fiscal year 2006
performance and accountability report (PAR), Interior is beginning to
validate costs reported in the SNC by implementing a reconciliation
process.
Although Interior has received an unqualified audit opinion on its
financial statements since 1997, it reported in its fiscal year 2006
PAR that internal control weaknesses continue to hinder its financial
management systems. Additionally, Interior reported that it confronts
challenges as it operates costly and duplicative financial and business
management systems. Controls over nonfinancial data are generally
limited to bureau-level review for reasonableness. Interior
acknowledged the need for independent department-level validation and
verification of nonfinancial ABC/M data. Further, Interior does not
have written procedures for monitoring the quality and accuracy of its
ABC/M data. Interior officials told us that not all bureaus have
written procedures for performance data validation and verification.
The department plans to follow up to ensure that all bureaus implement
data validation and verification standards and procedures in 2007.
Interior is in the process of implementing a new department-wide
integrated financial management system, FBMS, in part because Interior
leadership has recognized that its current environment of nonintegrated
systems increases its risk and does not provide all needed MCA
information. While Interior's current system provides only budgetary
data, Interior officials stated that FBMS plans include provisions for
both budgetary and proprietary accounting data. Interior officials
stated that they plan to include an integrated ABC/M system in FBMS.
Although a working model for ABC/M is being developed, an Interior
official told us at the time of our review that the user requirements
for the model have not yet been fully developed. A department official
further stated that once the requirements for FBMS's ABC/M system are
developed, and depending on the availability of funding and other
scheduling considerations, the working model could be implemented
approximately 18 months after the requirements are finalized. The
current FBMS implementation plan for the general ledger module calls
for a phased implementation with seven successful deployments beginning
in April 2006 and ending in fiscal year 2011.
Interior and Its Bureaus Use MCA to Support a Variety of Managerial
Decisions:
At the department level, Interior uses cost information to provide
visibility on the costs of activities. For example, a graphical report
to senior Interior executives called the Executive Dashboard provides
department leadership with access to some department-level program cost
information. MCA is also used for a number of purposes, including
supporting recommendations to change work processes to improve
efficiencies and generate cost savings, supporting decisions on
redirecting or reallocating resources, and preparing budgets and
performance targets. Interior officials reported that MCA is used to
provide visibility on the costs of activities and initiatives of
interest to departmental leadership, and one of its emerging
capabilities is the use of marginal cost models to identify and
understand the extent to which activities consume costs.
BLM officials use information from the Cost Management System for a
number of purposes, including projecting future resource needs based on
estimated workloads. Additionally, the BLM MCA system provides cost
information by organizational code, unit cost, and the number of work
outputs. It enables BLM to review and evaluate work processes across
the bureau to find ways to improve effectiveness, to reallocate
resources, set fees and prices, and monitor progress in achieving
performance goals.
BOR officials use MCA for a number of purposes including identifying
activities and outputs that could be useful in budget decision making.
For example, BOR reported in its fiscal year 2007 budget justification
that ABC/M data are refined and analyzed to support its efforts to
produce cost information to enhance budget decision making. BOR also
uses MCA data to review routine MCA reports on an ongoing basis to
identify budgetary shortages and surpluses associated with projects, to
identify and examine bureau workload trends, and to assist in the
reallocation of resources.
MMS officials reported that they use ABC/M for a number of purposes
including reporting management results, preparing cost recovery
calculation, and tracking and accessing key performance indicators.
However, MMS official also stated that it is difficult to find the
right level of detail to capture information to meet Interior, bureau,
and program needs, and there is a need for more timely access to ABC/M
and performance information for decision making.
Officials at NBC use a manual process incorporating prior year
financial information to determine prices charged to their customers.
However, NBC does not have written policies and procedures regarding
recovery of costs by product lines to prevent over-and under-charging
of customers. Additionally, financial analysis conducted to determine
whether reserves were established within authorized limits, was not
documented.
Conclusion:
Interior's strong leadership has promoted the benefits of MCA and
facilitated strong cross-bureau collaboration. However, it continues to
confront challenges as it moves toward replacing its multiple,
nonintegrated systems with one that includes a cost accounting module
to serve the department and all its bureaus. Developing and
implementing a system to verify and validate nonfinancial data at the
department level would strengthen Interior's internal controls, both
with the current and planned systems. Although some of the bureaus have
written policies and procedures for performance data validation and
verification, having these policies and procedures at the department
level would enhance Interior's ability to monitor the quality and
accuracy of its nonfinancial data. In addition, attention to ongoing
MCA system implementation monitoring will help ensure that functions of
the new system will meet user needs. Finally, establishing clear cost
accounting methodologies will help ensure that data used and provided
by the system are reliable, timely, and useful in making day-to-day
decisions.
Recommendations for Executive Action:
We are making eight recommendations to the Secretary of the Interior.
To promote the implementation and use of reliable MCA methodologies to
support more informed managerial decision making in Interior and its
bureaus and department offices, we recommend that the Secretary direct
department officials to:
² Perform an assessment of the internal controls related to
nonfinancial data, including key indicators used for executive decision
making, such as the Executive Dashboard and determine whether the
current internal controls are adequate and meet the department's
published guidance.
² Monitor bureau's development and implementation of written procedures
for performance data validation and verification at all bureaus.
² Continue to monitor the FBMS implementation plan to determine that
MCA functionalities that meet user requirements are included.
To promote the implementation and use of reliable MCA methodologies to
support more informed managerial decision making in BOR, we recommend
that the Secretary direct BOR officials to:
² Identify and address any inconsistent work output measures between
the bureau and departmental systems that are essential to Interior
management to help form the basis for consistent cost measurement.
To promote the effective use of proper cost accounting methodologies to
support pricing and other managerial decision making at NBC, we
recommend that the Secretary of the Interior direct appropriate NBC
officials to:
² Monitor compliance to existing policies in relation to the
application of direct costs, including annual leave and holidays.
² Document all policies and procedures to help ensure the recovery of
costs by product lines to help prevent over and under charging of
customers.
² Complete determination of methodology, and implement a consistent
methodology for pricing of services at NBC.
² Document policies and procedures for establishing reserves.
Agency Comments and Our Evaluation:
In a letter from the Assistant Secretary of Policy, Management, and
Budget, Interior stated that the draft report provides an accurate
representation of its MCA implementation efforts and status. Interior
fully concurred with six out of the eight recommendations and that it
will work to address the weaknesses cited in the draft report,
particularly in the areas of process documentation, data validation and
verification, reconciliation of MCA, financial reporting, and unit
costing.
Interior did not agree with two of our recommendations because it
believed it had already taken action to address these recommendations.
The recommendations address performing an assessment of the internal
controls related to nonfinancial data, including key indicators used
for executive decision making, and having the department develop
written procedures for performance data validation and verification at
all bureaus.
Interior stated that it conducted the assessment of internal controls
related to nonfinancial data in 2006, and that it provided guidance to
its bureaus on developing data validation and verification standards.
We revised our recommendation to acknowledge Interior's published
guidance to its bureaus. However, not all bureaus had written policies
on data validation and verification at the time of our review.
Accordingly, we continue to believe our recommendations for assessing
internal controls over nonfinancial data and the need for departmental-
level management to monitor bureaus' progress with policy direction
have not yet been fully addressed. Interior also stated that it intends
to follow up with the bureaus in 2007 to ensure that they have either
implemented or are taking action to implement our recommendation for
Interior's bureaus to establish written data validation and
verification standards and procedures for nonfinancial data. We agree
that this follow-up is necessary and revised our recommendation to
require department officials to monitor the bureaus' development and
implementation of written procedures for performance data validation
and verification. Interior's written comments are reprinted in
enclosure I.
Scope and Methodology:
Our methodology was consistent with the one employed in our prior
reviews of MCA practices.[Footnote 13] To obtain an understanding of
how MCA systems at Interior generate cost information, we reviewed
documentation and interviewed officials at Interior headquarters and at
selected bureaus and department offices on the status of MCA system
implementation, departmental guidance and leadership's commitment to
the implementation of cost management practices entity-wide,
departmental internal controls to help ensure the reliability of
financial and nonfinancial information used in MCA, and any obstacles
raised by Interior to implementing managerial costing. Using the
Standards for Internal Control in the Federal Government[Footnote 14]
as a guide, we identified internal controls over the reliability of
financial and nonfinancial information used in MCA. To determine how
managers use cost information to support decision making and provide
accountability for government resources, we obtained an understanding
of how Interior uses cost accounting data for budgeting, costing
services or products, preparing the SNC, managing contractors'
reimbursable costs, and other managerial uses through a review of
documentation provided by the agencies and interviews of agency
officials. We selected for review Interior's larger components in terms
of their obligations and earned revenue, and those with cost recovery
activities, such as working capital funds.
During our review, we visited Interior headquarters in Washington, D.C.
We visited three component bureaus-BLM, BOR, MMS, and the WCF in
Washington, D.C. We also visited BOR and MMS offices at the Denver
Federal Center and held teleconferences with bureau policy and program
development officials in Washington, D.C. and at the Denver Federal
Center.
When possible, we corroborated information obtained in interviews with
agency documents such as policies, procedures, system descriptions, and
flowcharts. We also reviewed prior Office of Inspector General,
independent public accountant, and GAO reports regarding Interior's MCA
activities, systems, and data. We requested comments on a draft of our
letter from the Secretary of the Interior or his designee. We received
written comment from the Assistant Secretary on January 22, 2007. We
considered and incorporated Interior's comments as appropriate. We
performed this work from July 2006 through November 2006 in accordance
with generally accepted government auditing standards.
We are sending copies of this report to the Secretary of the Interior,
the Director of the Office of Management and Budget, and other
interested parties. Should you or your staff have any questions on the
matters discussed in this report, please contact me at (202) 512-6131
or martinr@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report are
listed in enclosure II.
Signed by:
Robert E. Martin:
Director, Financial Management and Assurance:
Enclosures - 2:
[End of section]
Enclosure I: Comments from the Department of the Interior:
United States Department of the Interior:
Office Of The Assistant Secretary:
Policy, Management And Budget:
Washington, DC 20240:
Take Pride In America:
Jan 2 2007:
Mr. Robert E. Martin:
Director, Financial Management and Assurance:
Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Martin:
Thank you for allowing the Department of the Interior to review and
comment on the Government Accountability Office's (GAO) draft report
(GAO Job 197013) on our Managerial Cost Accounting (MCA) practices.
MCA, or Activity Based Cost Management (ABC/M) at the Department of the
Interior, has been a departmental priority since 2003. We have worked
very hard to ensure that our managers have accurate, up to date
information on the cost of their programs and how well their programs
perform. Departmental and bureau leadership have taken active roles in
guiding ABC/M implementation, and in developing and promoting the
benefits and uses of managerial cost accounting information, a finding
that we are gratified to see highlighted in the GAO draft report.
Overall, we believe that your draft report provides an accurate
representation of our MCA implementation efforts and status. We concur
with most of your recommendations and will work diligently to addresses
the weaknesses cited in the draft report, particularly in the areas of
process documentation, data validation and verification, reconciliation
of MCA and financial reporting, and unit costing.
There are two recommendations with which we do not concur because the
suggested actions have already occurred. These recommendations address
performing an assessment of the internal controls related to
nonfinancial data, including key indicators used for executive decision
making, and having the Department develop written procedures for
performance data validation and verification at all bureaus. The
assessment of internal controls related to nonfinancial data was
conducted in 2006. This assessment included providing to each bureau
recommendations on developing bureau data validation and verification
standards that would address the Departmental data validation and
verification standards published in 2003, and republished in 2005.
These standards also addressed developing written procedures for
performance data validation and verification. We intend to follow up
with the bureaus in 2007 to ensure that they have either implemented or
are taking action to implement data validation and verification
standards and procedures for nonfinancial data. We have also attached
our technical response to clarify some statements in your draft report.
The Department appreciates the opportunity to participate in GAO's
review of Federal government managerial cost accounting practices.
Sincerely,
Signed by:
R. Thomas Weimer:
Assistant Secretary:
Attachment:
[End of section]
Enclosure II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Robert E. Martin (202) 512-6131 or martinr@gao.gov:
Acknowledgments:
In addition to the contact named above, key contributors to this
assignment were:
Paul Kinney, Assistant Director; Lisa Brownson; Debra Cottrell; Lisa
Crye; Dan Egan; Tiffany Epperson; Thomas Hackney; Jeff Isaacs; Diane
Morris; Glenn Slocum; and Jack Warner.
(197013):
FOOTNOTES
[1] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990).
[2] In 2005, JFMIP's responsibilities for financial management and
policy oversight were realigned to the Office of Management and Budget,
the Office of Personnel Management, and the Chief Financial Officers
Council.
[3] Pub. L. No. 104-208, div. A., § 101 (f), title VIII, 110 Stat.
3009, 3009-389 (Sept. 30, 1996).
[4] GAO, Managerial Cost Accounting Practices: Leadership and Internal
Controls Are Key to Successful Implementation, GAO-05-1013R
(Washington, D.C.: Sept. 2, 2005); Managerial Cost Accounting
Practices: Departments of Labor and Veterans Affairs, GAO-05-1031T
(Washington, D.C.: Sept. 21, 2005); Managerial Cost Accounting
Practices: Departments of Education, Transportation, and the Treasury,
GAO-06-301R (Washington, D.C.: Dec. 19, 2005); Managerial Cost
Accounting Practices: Department of Health and Human Services and
Social Security Administration, GAO-06-599R (Washington, D.C.: Apr. 18,
2006); and Managerial Cost Accounting Practices: Departments of
Agriculture and Housing and Urban Development, GAO-06-1002R
(Washington, D.C.: Sept. 21, 2006).
[5] See Statement of Federal Financial Accounting Standards No. 4:
Managerial Cost Accounting Concepts and Standards for the Federal
Government.
[6] Core financial systems, as defined by the Office of Federal
Financial Management, include managing general ledger, funding,
payments, receivables, and certain basic cost functions.
[7] Examples of administrative systems include budget, acquisition,
travel, property, and human resources and payroll.
[8] In March 1997, the Federal Accounting Standards Advisory Board
delayed SFFAS No. 4's implementation from fiscal year 1997 to fiscal
year 1998.
[9] Direct costs are costs that can be specifically identified with an
output, including salaries and benefits for employees working directly
on the output, materials, supplies, and costs for facilities and
equipment used exclusively to produce the output.
[10] Indirect costs are costs that cannot be specifically identified
with an output and may include costs for general administration,
research and technical support, and operations and maintenance for
building and equipment.
[11] Non-financial data measure the occurrences of activities and can
include such things as hours worked, units produced, grants managed,
inspections conducted, or people trained.
[12] Proprietary accounting data records financial transactions,
whereas the cost accounting system contains budgetary accounting data
that are used to facilitate compliance with fiscal laws and reflects
estimated costs and financial condition.
[13] GAO-05-1013R, p. 12; GAO-06-3O1R, p. 7; GAO-06-599R, p. 5; GAO-06-
1002R, p. 7.
[14] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
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